Shares in Nikola Corporation (NASDAQ: NKLA) opened Thursday morning 8% lower after it was revealed that company founder Trevor Milton was indicted by the Southern District of New York federal prosecutor’s office (SDNY) and the SEC.
Milton is charged with fraud and false statements that mislead investors about the viability of Nikolas technology.
Milton had already resigned late last year and left the company amid controversy after activist short seller Hindenburg Research published a research report detailing how Nikolas product demonstrations were faked.
A truck is rolling down a hill
Specifically, Milton is accused of targeting private investors (especially individuals using apps like Robinhood) on social media and other media outlets, promoting Nikola, and claiming that the hydrogen fuel cell truck called Nikola One was commercially viable.
Hindenburg said the Nikola truck demo only showed that the vehicle was rolling downhill and that the truck was not going at all.
The company’s reaction also generated little confidence. “Nikola never said in the video that his truck was self-propelled,” the company wrote at the time. Nikola’s claims had even convinced car giants General Motors (NYSE: GM) to invest in the company, but the legacy automaker pulled out of the partnership after the revelations.
“From around November 2019 to September 2020, Milton’s statements in tweets and media appearances individually and collectively drew a picture of Nikola that differed greatly from his reality at the time,” says the SEC complaint.
The SEC’s legal filing contains a handful of allegations against Milton, including:
- The false claim that the Nikola One could be “self-propelled”.
- The false claim that Nikola could produce hydrogen and “obtained electricity at a cost that made hydrogen production profitable”.
- Erroneously claims that Nikola has already secured multi-billion dollar contracts.
- The false claim that the total cost of ownership of Nikola trucks would be 20 to 30% lower than comparable diesel vehicles.
Nikola went public by merging with a special purpose vehicle (SPAC) that gave Milton a 25 percent stake in the company. Securities regulators argue that Milton’s motive was to inflate Nikola’s stock price, which allowed him to pocket tens of millions of dollars. At Nikolas peak, Milton’s shares were worth over $ 1 billion.
“Milton’s focus remained on the share price and his attempts to influence the retail investors, whom he viewed as a driving force,” writes the SEC. “To that end, Milton kept track of the daily number of new Robinhood users who held Nikola stock.”
While Milton left Nikola many months ago, the ongoing skepticism about the company’s technology is still very relevant to investors. Here is Nicolas’ official statement on the charges:
“Trevor Milton resigned from Nikola on September 20, 2020 and has not been involved in the company’s operations or communications since then. Today’s government action is against Mr. Milton individually, not against the company. The company worked with the government during its investigation. We are sticking to our previously announced milestones and schedules and are concentrating on delivering Nikola Tre’s battery-electric trucks from the company’s production facilities later this year. “
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